Current Ratio

What is Current Ratio?

Current ratio is a metric that makes it easier for businesses to understand their ability to deal with short-term liabilities. Use the following formula to calculate current ratio:

Current ratio = current assets/current liabilities

In this formula, “current assets” should include accounts receivable, and “current liabilities” should include both accrued expenses and accounts payable.

If your company has a current ratio between 1.5 and 2.5, it should have good liquidity. For example, a current ratio of 1.5 means your business has $1.50 for every dollar in current liabilities.

Related terms

Current Ratio

Current ratio is a metric that makes it easier for businesses to understand their ability to deal with short-term liabilities.

Customer Acquisition Cost (CAC)

Customer Acquisition Cost (CAC) is the total amount of money a company spends to gain a new customer.

Customer Lifetime Value (CLV)

Customer lifetime value (CLV or CLTV) is a metric that estimates the total revenue a business can reasonably expect from a single customer account throughout the business relationship.

Daily and Weekly Aged Debtor Analysis

Accounts receivable aging is the process of calculating and comparing the debts your company is owed based on how long it takes creditors to pay them. This number is typically expressed in days or weeks.

Data Mining

Data mining is the process of uncovering patterns and extracting valuable information from large sets of data. It's like sifting through a gold mine of information to find hidden gems of insights.

Days Inventory Outstanding (DIO)

Days Inventory Outstanding (DIO) is a working capital management metric that measures the average number of days a company holds onto its inventory before selling it. In other words, it tells you how long it typically takes for your inventory to be converted into cash through sales.